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Toys R Us eyes $800 million IPO
NEW YORK |
NEW YORK (Reuters) - Toys R Us TOY.UL filed to raise as much as $800 million in an initial public offering in what could mark its return to the public markets after five years.
But investors' appetite for the U.S. retailer, which was taken private in 2005 by Kohlberg Kravis Roberts & Co KKR.AS, Bain Capital, and shopping center operator Vornado Realty Trust (VNO.N) in a $6.6 billion deal, will depend on how much of the money raised will go to its current owners and how much will go to fund growth.
Those three companies collectively own 98.2 percent of Toys R Us, but the prospectus filed on Friday with the U.S. Securities and Exchange Commission did not specify whether they would shed any of their stakes in the eventual IPO.
Toys R Us, based in Wayne, New Jersey, said in the filing that it plans to use the net proceeds of the offering to pay down some of its debt, but did not give specifics.
Recent private-equity backed IPOs have flopped because they were seen as exit vehicles for buyout firms. Toys R Us and its underwriters will have to price the IPO sensibly and make clear it will leave the retailer equipped to compete in the changing marketplace, an analyst said.
"Right now, I don't believe there is a good market whatsoever for private equity-backed companies. It's hard enough to launch an IPO, but much tougher for a debt-laden company," said Scott Sweet, a senior managing partner with IPO Boutique.
Toys R Us' long-term debt load of $5.2 billion could turn-off investors, Sweet said.
The filing did not specify the number of shares, or a price range estimate, terms that typically come in an amended filing shortly before an IPO is launched. Nor did it provide an approximate timing for the stock flotation.
For now, Friday's filing is likely to be a "trial balloon" to allow the underwriters, led by Goldman Sachs (GS.N), to gauge investor appetite for the IPO, according to various pricing and share size scenarios, Sweet said.
Given the recent stock market turmoil, a Toys R Us IPO is likely to be "months away," Sweet said.
KKR, which expects to raise a new fund at some point, is in the process of exiting a number of investments. It took its discount shopping chain Dollar General (DG.N) public in November when it priced near the bottom of its range at $21.
Dollar General shares were at $30.56 in midday trade on the New York Stock Exchange.
Hospital operator HCA Inc, backed by Bain and KKR, filed earlier this month for an IPO of up to $4.6 billion, the biggest buyout-backed offering since the financial crisis began nearly three years ago. Coffee chain Dunkin' Donuts is also believed to be considering an IPO.
BETTER PROFIT BUT TOUGH RIVALS
Toys R Us is the largest specialty toy store in the United States, but is competing Wal-Mart Stores Inc (WMT.N), Amazon.com Inc (AMZN.O) and Target Corp (TGT.N). Toymakers like Hasbro HAS.N and Mattel (MAT.O) are also making a bigger push to sell directly to consumers through their own brands' websites.
In the filing, Toys R Us acknowledged that some rivals "have greater sales of toys and juvenile products than us, greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do."
Toys R Us operates 1,363 stores around the world under its own name, as well as the Babies R Us and FAO Schwarz chains, making it one of the more prominent names in the U.S. pipeline.
But Sweet warned name recognition alone won't whet investor appetite. Investors typically want to see fast sales and profit growth to justify taking on riskier IPO stocks.
In the fiscal year ended in February 2007, sales were $13.1 billion, and had only risen to $13.6 billion last year.
But during that period, its net profit nearly tripled to $312 million from $109 million, as the retailer cut costs and kept its store count relatively stable.
It showed some signs that sales were perking up late last year. Sales at stores open at least year, a retail gauge known as same-store sales, were up 4.6 percent in the United States in the holiday selling month of December.
In addition to Goldman, the bookrunners include JP Morgan, Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank Securities, Citi and Wells Fargo Securities.
The company plans to list its shares on the New York Stock Exchange under the symbol "TOYS."
(Additional reporting Megan Davies in New York and Supantha Mukherjee in Bangalore; Editing by Gopakumar Warrier, Dave Zimmerman, Leslie Gevirtz)
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